All is not lost! The organisations above propose a couple of solutions in order to make it easier to raise financing for SMEs. Two suggestions that we found the most interesting are “Alternative fintech solutions” and “Shortened payment terms” from customers.
Legislating about shortened payment terms might be a great solution at first sight and especially when looking at the graph to the right which shows that payment terms from customers to smaller companies are longer than for larger companies. But in practice it is more complicated as companies operate in a competitive environment and payment terms is a term and condition up for business negotiation, same as for price and other conditions. It should also be taken into consideration that many companies operate on an international market and that payment terms differ significantly in various parts of the world.
The reason for selecting the suggestions of “Alternative fintech solutions” and “Shortened payment terms” is of the possibility of today to combine the two for a viable and practical solution for companies to run operations in a more capital efficient manner and in order to improve operating cash flow in “Sources and Uses”. By doing this a company can improve its self-financing. This would in turn make the company less dependent on external financing for its daily operations and enable cash release, which can be used for e.g., growth, capex and investments.
A third alternative for SMEs, with an exporting feature in its business, to raise necessary capital is with a credit guarantee, where a bank shares the risk with a domestic state owned Export Credit Agency (ECA) (EKF in Denmark, Finnvera in Finland, GIEK in Norway and EKN in Sweden). The Nordic ECAs can cover a percentage of the risk and thereby making it more attractive for a bank to lend out money to a company. The support and risk coverage the Nordic ECAs can offer differs between the four Nordic ECAs, but all include risk coverage which enables banks to provide companies with the possibility for invoice discounting and / or to set-up an overdraft facility.
Nordea offers various types of solutions based on your business
Over the last couple of years, Fintechs have enabled solution providers to fine tune their offerings to make them more accessible for SMEs. It is of course inevitable that smaller companies often trade in smaller volumes than larger companies, but they still often trade with a high complexity. For example, smaller companies, especially in the Nordics, clearly view their market as global, but being a small player in an international market may have its obstacles.
Receivables Finance offers a fast, easy and accessible way for SMEs to unlock the cash in their accounts receivables, by receiving cash for issued invoices. This is not a loan; it is essentially the liquidation of an asset to produce ready cash. For the accounts receivable to be considered a viable asset the risk on the buyer should of course be bankable. In many cases SMEs are suppliers to larger companies and as depicted previously, banks have often a larger risk appetite on large, strong companies. Nordea has a full variety of receivable finance solutions for different kinds of companies. We help your company to free up capital tied up as accounts receivable. Flexibility and intelligent services are common features for all of them.
Nordea is a founding partner of we.trade, a new trading platform with a solid backbone of 10+ leading European banks. The we.trade platform is built on the latest version of the IBM Blockchain Platform utilising blockchain technology to provide traders with easy access to financing and logistics. The Invoice Financing product on the Platform allows the seller to request finance from its bank, based on the invoice that the buyer has accepted via the we.trade platform, in a transparent and secured environment.
ECA covered risk
In many cases, if your company has exporting feature in your business, Nordea is also able to support your company in close cooperation with your domestic ECA. The ECA provides coverage of risk and enables Nordea to provide your company with the necessary funding and risk management.
Explore further the we.trade platform, Nordea’s Receivables Finance and the various solutions that can be provided in cooperation with ECAs in Denmark, Finland, Sweden and Norway. Reach out to Nordea to discuss how we can support your company’ value creation and growth.
For more information please write to Henrik at henrik.anbelin [at] nordea.com.
1. ¹Företagarna, Företagarnas finansieringsrapport 2021, Mars 2021, page 6.
2. ²Företagarna: Företagarnas finansieringsrapport 2021, Mars 2021, page 10
4. ⁴Svenskt Näringsliv, Bankregleringen och företagens kreditmöjligheter, November 2019, page 26